Board Gender Diversity and Supply Chain Risk Management

Abstract

How does corporate board gender diversity affect supply chain risk management? Board gender diversity can influence supply chain risk management through behavioral and agency-based mechanisms. Female directors’ greater risk aversion, lower overconfidence in the face of uncertainty, and heightened accountability pressures may lead to stronger oversight and risk mitigation efforts in operations, where risks are quantifiable and failures are highly visible. Therefore, we should expect supply chain risk management to increase with increased women representation in corporate boards. We test this prediction leveraging on a reform requiring California firms to increase board gender diversity. We find that the propensity to use purchase obligations, supply contracts designed to mitigate the risk of future price fluctuations and reduce procurement uncertainty, increased for California buyers following the reform. We also find that California buyers increased their geographic supply chain diversification and became more likely to discontinue relationships with high-default risk suppliers after the reform. These changes are larger when female directors are better positioned to influence corporate decisions, contributing to validate board gender diversity as an important channel for operational changes. The takeaway for corporate leaders, policymakers, and shareholders is that board gender diversity can lead to a greater focus on supply chain risk management, which increases profitability.